A new report shows the reverse mortgage industry grew 9 per cent last year, mainly to fund retirees' living costs.

A reverse mortgage is a loan against part of the value of a home, where no repayments or interest payments need to be made, with the financial institution reclaiming what it is owed (including compounding interest) when the owner sells or dies.

It is a tool generally used by older Australians on lower incomes who have paid off their home mortgages as a means to access some of the value of that home.

The latest report into the industry, conducted by consultancy Deloitte and sponsored by the industry's association SEQUAL, has found home improvement, income top-ups and debt repayments were the main reasons for older Australians taking out reverse mortgages.

SEQUAL chief executive Kevin Conlon says the financial crisis has seen an even greater focus on people taking out loans to help fund the cost of living or to repay higher interest credit card debts.

"People have moved away from desire-based expenditure - overseas trips, purchasing holidays - to more needs-based expenditure," he said.

"Typically today we see home improvements and also in terms of topping up their regular income to ensure they can live well in retirement."

The report found there were about $2.7 billion in reverse mortgages outstanding in Australia and there are now about 39,000 households holding a reverse mortgage.

The nature of reverse mortgages means the repayments come out of the realised value of the home when it is sold or when the owner dies.

However Mr Conlon says most adult children of the borrowers are not overly concerned about the effect on their future inheritance.

"The common perception might be that the children of our clients are against the transaction, they're against the idea of their parents squandering wealth in the family home," he said.

"In fact, nothing could be further from the truth. Our experience over many years shows us that, if anything, the adult children of the baby boomer generation looking to tap into their equity wealth are very encouraging of their parents living well."

Reaching retirement

He expects the reverse mortgage market to grow more quickly as the baby boomer generation reaches retirement and seeks to supplement their incomes.

"I think we will move beyond the traditional concept of the family home being something you pay off as quickly as you can and in retirement you use it only as an [asset of] last resort," he told ABC News Online.

"I think increasingly the family home is becoming a part of the processes of retirement planning and the family home will be an active asset in retirement."

However, these types of mortgages do present risks not only to the potential inheritance left to relatives, but also to the financial institutions that offer them.

If house prices fall causing the outstanding debt to be worth more than the property the financial institutions (at least the ones that are members of SEQUAL) have no recourse to other assets of the estate to recover the difference.

"[There is] a very strong reliance on property [price] growth. These are non-recourse loans in the sense that consumers will never owe more than the value of the security that they've offered... so necessarily that puts a greater exposure to property for lenders," Mr Conlon said.